Hayek 's Study On The Economic Cycle And Its Methodological Features

Business cycle is one of the most significant field in macroeconomic research. Hayek’s business cycle theory is very popular during the 1920s and 1930s. However, with the rapid acceptance of Keynesian economics, Hayek’s business cycle theory has been marginalized and almost forgotten by many. Even so, Hayek’s theory has profound theoretical impact and Hayek won the 1974 Noble Prize for his contribution in business cycle theory. As of now, some people call for the revival of Hayek’s theory. In addition to this, domestic academia are less familiar with Hayek’s business cycle theory compared to his other works on sociology, politics and law. As such, the author hope to contribute to the revival of Hayek’s business cycle theory with this thesis.In Hayek’s theory, increase in saving leads to extension of stage of production and increase of productivity, and therefore economic growth. However, credit expansion would lead into business cycles and recessions. In this theory, stable pricing level, expanding credit, increasing asset price and fixed asset investment, loosening financial regulation and technological advances combined are warning sign for a recession.This dissertation focus on the analysis of Hayek’s business cycle theory, and put it back in the background of its methodological foundations and Austrian methodologies in economic analysis. This paper finds that Hayek’s business cycle theory are characterized by subjectivism and methodological individualism. These two themes are embedded in all of Hayek’s economic researches, which separate his theory from Keynesian’s and monetarist’s. The author explored the key difference between Hayekian and these two mainstream schools, the sources of discrepancies in theories themselves and methodologies.This dissertation finds that the weakening of Hayekian theory and rising of Keynesian and monetarism reflect the ideological trend during 19th and 20th centuries: holism and scientism. The dissertation concludes that individualism and subjectivism are vital to Hayek’s economic research and any other social science research.This paper first analyzes Hayekian business cycle theory and its theoretic characteristics, and then moves to a controlled comparison with other business cycle theories on key theoretical joints (mainly Keynesian and Monetarist). This paper further explores the methodological roots for the differences. Finally, this paper expands Hayekian business cycle theory to include productivity gain and global openness, and analyzes the global financial crisis and China’s saving issue.Based on the 360 degrees analysis, this dissertation discussed the philosophical and realistic implications of Hayekian business cycle theory.